CPA or CPM: What's the Better ROI?

Since cost-per-acquisition/action programs were introduced a year ago, there has been debate as to whether they produce a better return on investment than cost-per-thousand. The answer depends on the e-mail offer and whether the name in the subject line is familiar to the receiver.

The obvious advantage of CPA programs is that they are a risk-free way for companies to send a general offer to lists of Internet users. Because the e-mail firm is paid solely on the success of the campaign, there is no cost to the marketer unless a user responds.

We've conducted many CPA campaigns, with open rates of up to 37 percent for major brands. The downside to CPAs is that usually only very attractive offers from companies with household names produce open rates above 10 percent.

CPM lets companies from a Fortune 500 to a hi-tech start-up target a group of consumers with very specific interests. Marketers pay for each list, with a range of $50-$160/CPM depending on the number of specifications. But the list is worth the money because open, click-through and response rates are always higher, sometimes seven to 10 times higher, than if the same offer were done with a general CPA list.

CPM is the most effective marketing option for contacting customers as long as companies and e-mail marketers use the appropriate method and targeted list for the offer.

Problems arise when small or emerging companies, attracted by the no-cost aspect of CPA campaigns, arrange deals with e-mail marketers to shotgun offers to general lists. Though this shortsighted approach sometimes provides a cost-effective return on investment for the individual company, e-mail marketers must realize that overuse of CPA campaigns may damage the industry in the long run.

How can this happen? First, consumers will get frustrated with receiving untargeted offers, and response rates will drop. Most users accept only a limited amount of untargeted opt-in mail per week before they start filtering out or automatically deleting even the most tempting offers. Some users may opt off e-mail lists. If they do, it will be much more expensive to get them to opt in again. Others will make a point of never opting in again.

If consumer response rates drop, so will companies' interest in opt-in e-mail as a marketing medium. Opt-in e-mail has increased exponentially over the years because it is far more cost-effective than every other marketing tool. But the industry is only as strong as the customers that it can provide.

The additional mail that CPA campaigns generate also can bog down service providers or even cause them to crash. To compensate for their costs to upgrade technology to handle the extra e-mail, service providers may raise their rates for companies that generate more than a specified amount of e-mail. If they receive enough complaints from consumers, providers might ban certain e-mail marketing companies from using their services.

It's obvious that we as marketers must find a way to give companies the most for their dollars while preserving the integrity of the industry. For starters, companies and e-mail marketers should carefully select the CPA offers they send. In our experience, 90 percent of campaigns will have more cost-effective results if a CPM program is used. A CPA effort is effective only if the offer is from a branded, national company and the offer includes savings on common products or services the receiver may already use.

It's also important to avoid oversaturating a list with offers. Our policy is to mail no more than two offers a week to a list. Though this may not seem like a lot, many users often receive offers from several lists.

Finally, list owners must be more responsible about test programs for the CPA model. Instead of mass mailing the offer to millions of users, owners should test the offers with a mailing of 100,000 e-mail addresses. By respecting the recipient, we maintain the integrity of files and the effectiveness of e-mail as a marketing medium. If the campaign does not produce the desired results, it should be canceled and the offer reworked.

E-mail is a fast, inexpensive, cost-effective way to distribute marketing material to targeted groups and the general populace. Both CPA and CPM campaigns can be effective when proper, tried-and-true guidelines are followed.

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